Panel SA: Drug price transfer challenges the pharmaceutical sector

After 129 years since Drogarias Pacheco opened its first store, in Rio, and a decade after the merger with Drogaria São Paulo, which formed the DPSP Group, the company closes 2021, the second year of the pandemic, against a backdrop of accommodation.

Jonas Laurindvicius, president of the company, describes steps that pharmaceutical retail has gone through.

Although they did not have operating restrictions with the arrival of Covid, the large drugstore chains were impacted by the emptying of the busiest addresses, when consumers were confined to neighborhoods with lower concentration of stores.

The initial surge in the prices of products such as masks and alcohol gel, at a time of imbalance between supply and demand, now follows a downward trajectory. After these steps, the question for 2022 is inflation. Today, the sector is already experiencing difficulties in passing on the highs.

“It is a big question where this will lead, because the news is not very optimistic on the planet. When there is a slightly higher unemployment situation, which is the case on the planet, and with inflation, this inflationary period will hardly be maintained for a long time,” says Laurindvicius.

How did the company get through this centenary to the merger and how has it changed over the last decade? The first pharmacy under the name Pacheco was in 1892. Then, in 1974, a distributor was opened, which distributed to independent pharmacies in Rio de Janeiro. It was in this dynamic that it was identified that it would be interesting for the distributor to have its points of sale. And that’s how Pacheco’s story unfolded, opening new stores in several neighborhoods in Rio and around the capital.

In fact, the distribution essence couldn’t even supply the stores themselves. Then, the branch turned to 100% pharmaceutical retail. The distributor ended up closing its operations, and the focus was on opening stores and customer service. The laboratories started to supply to distribution centers.

The DPSP Group [Drogarias Pacheco e São Paulo] today it has more than 1,400 stores in eight states and the Federal District. We also have our first store, which is in the center of Rio de Janeiro. A renovation was carried out, reminiscent of the 1950s in drug stores. It has a wooden counter, the design on the floor, the bottles formerly used by the pharmacist, who served the local population. It goes right back to that time when the pharmacist was practically a community doctor.

The founder was a pharmacist. In the beginning, we had a deck, which was offered as a prize to our customers. When they shopped annually, they got freebies, and had collections in playing cards colors with the Pacheco family. There was a closeness to the customer, which is still our essence in employee training.

In recent years, after the merger, there were many stories that there were foreign groups interested in buying them. Why that? The merger completed ten years this year. The company has grown a lot, more than doubled in size since the merger. Obviously, as a profitable, profitable group, with its brands well recognized in the markets in which it operates, it is constantly harassed. There is always harassment in the market, interest from large financial institutions in companies like ours.

But we have no intention at the moment, nor anything materialized, nor any goal of making our company commercialized in the market. There is no such intention.

How was the impact of the pandemic on an industry like yours, which did not have to close? I think every sector has had some impact. Despite being considered an essential sector, like supermarkets, the movement practically stopped in large urban centers, where the largest stores are, such as Avenida Paulista and Rio Branco, in Rio. People migrated to their homes. Large chains do not have pharmacies in all locations. Our store opening flow has always been in points of great concentration of offices, shopping centers.

In a way, the pharmaceutical groups of large chains were also affected. But there was a demand for vitamins, for precautionary and prevention information.

The consumption of beauty, dermatological, hair and makeup products dropped when people stayed home without social events. In contrast, we had the addition of Covid tests. Finally, when the vaccine arrived, we offered our drugstores, in all the states where we operate, for partnerships with local city halls for the application of the vaccine.

The mask was a product that also came in at that time, but recently the price dropped. How was this change?In the beginning, the mask, an essential product for prevention, was produced locally and imported from the East. What happened was that worldwide demand for masks impacted their price. It rose five times the value at its peak, at the beginning of the pandemic.

This impacts the entire market. With a shortage of product, many textile and clothing factories turned their production lines to produce masks. Then, when it regularizes, with an accommodation of demand and supply, this makes the price regularize.

But in the beginning there was a lack of masks, lines, product reservations. It happened with mask, gel alcohol, liquid alcohol, vitamins. There was greater demand than supply.

And what about those other products in the Covid kit that, although without proven efficacy, also had an increase in demand? How are you now?The most popular medications were regulated by Anvisa, started to be prescribed with a prescription. This attitude helped to regularize the demand for these products. Really, there was an unbridled search at first. And then, with regulation through revenue, it ended. Doctor and patient, by mutual agreement, prescribing when necessary.

It had the boom a year, a year and a half ago, and now it has returned to normal consumption of the product for those with comorbidity. Shelves normalized.

This type of medication is essential for the population that needs it because it has a comorbidity, a chronic disease, and needs to consume some of those medications daily. If it were missing from the shelf, in fact, it would be impacting the health of those who need the drug for many years, long before Covid.

In recent years, the group had a sales growth that did not keep up with the competition. There was an effort by the company to increase sales and even a change of command, with his arrival in the presidency. How is this trajectory?Our group, since the merger, has been extremely profitable and profitable. Compared to other more local players, we have defined regions, in the eight states in which we operate, where we have the biggest brands. We continue to grow in these states.

Compared to the market where there are other players that have advanced in all states, we have been decreasing, but in the markets in which we operate, year after year there has been sales growth throughout the history of the merger.

The merger into the company was very successful, because in the two biggest brands, in São Paulo and Rio, we had the largest market share capture and growth in these states is higher.

The National Consumer Secretariat opened an investigation to see how the large drugstore chains are carrying out their discount programs with the collection of customer data. Consumer protection entities are also keeping an eye on the LGPD (General Data Protection Law). How is this data being used?Data protection law is important in any field. At the pharmacist, it’s very important, because if I want to build a relationship with my client, I need to wake up if he’s willing.

In DPSP, all stores only continue the relationship if the customer chooses to maintain it. Our relationship is not linked to promoted products or drug sales incentives, but in helping health and well-being. Our mission is to help control a treatment. It helps with a network of doctors available, physically or digitally.

The pandemic accelerated digital prescriptions, the relationship with the doctor via video. We have several partnerships in this sense to promote the link between patient and doctor, going through data and information to help you in the treatment.

Our mission is much bigger than offering promotions, cheaper drug prices. And from the initial date of the LGPD, our relationship is only maintained with the customer’s consent. If you had a customer who did not consent, we do not have any direct or digital relationship. It’s only when he comes to the store counter and asks the pharmacist or our attendant.

What do you project to face this inflation scenario, considering that the drug has a controlled price?Inflation is worldwide. The negative results in the financial market come through news of inflation on the planet. Our country has also been suffering from this. Medicines have a price ceiling controlled by the increase in annual inflation measured by competent bodies.

What is happening is that the world financial situation is not good. So, the pharmaceutical market as a whole, laboratories and retailers, cannot even pass the entire capacity of the increase ceiling. The market is regulating itself to the point where it is not able to pass on the entire price of the drug as it should be, as it would be throughout the year. Even with the highs of the drug with pricing regulated by the government.

The entire production chain, all of it inflated. The price of packaging for the laboratory, raw material and these exchange variations deregulate any product supply. And there is no way for the laboratory to support this additional cost burden. Then there was a transfer.

Inflation is an important fact this year, but what everyone is saying is that next year it will be a little more regulated in terms of supply and demand. For us, it is also a big question where this will lead, because the news is not very optimistic on the planet.

​When there is a situation of a little higher unemployment happening, which is the case on the planet, and with inflation, this inflationary period will hardly last for a long time. The market itself will regulate.

with Andressa Mottere Ana Luiza Tieghi